RWE Npower Plc V Alstom Power Ltd

The contract precluded a set off from being raised against the sum awarded to the contractor by the adjudicator so that the employer was not entitled to set off its claim for liquidated damages where that claim was assumed to be bona fide, arguable and capable of operating as a set off

The adjudicator awarded a specified sum to the contractor. One of the employer’s grounds for resisting enforcement was its contention that it was entitled to set off against that sum its claim for liquidated damages. It was assumed that that claim was bona fide, arguable and capable of operating as a set off. The employer relied on clause 39 of the contract, which provided that the employer was entitled to deduct from any moneys due or becoming due to the contractor under the contract all costs, damages or expenses for which the contractor was liable to the employer under the contract. The employer submitted that clear words were required to deprive a paying party of the rights of set off arising by operation of law and that there were no such words in the contract. Indeed, far from there being words of exclusion, the right of set off was reinforced by clause 39. Finally the employer submitted that the contractual incorporation of the Scheme for Construction Contracts into the adjudication provisions for the contract, which was not a contract otherwise subject to the Construction Act, was not of itself sufficient to displace this common law right of set off by implying that the parties had agreed to import a "pay now, argue later" approach to sums payable to the contractor.

Judge Havelock-Allan rejected the employer’s contention. An officious bystander would conclude that by choosing to incorporate the provisions of the Scheme rather than their own bespoke provisions for adjudication, the parties intended to import into the contract the parliamentary intention underlying the Scheme. That intention did not apply by virtue of an implied term and instead applied as a matter of construction. The incorporated wording was to be given the same interpretation as it had when the Scheme had statutory force unless there were background matters concerning the incorporation of the Scheme or there was wording elsewhere in the contract which compelled a different conclusion. However, no specific background matters were relied on to contradict this inference and there was no wording elsewhere in the contract which compelled a different conclusion.